Market Recap: Thursday, April 22

Stocks erased earlier gains to trade sharply lower after Bloomberg reported Thursday afternoon that President Joe Biden would propose increasing the capital gains tax rate on wealthy individuals. The Dow dropped more than 250 points, or 0.7%, immediately following the report, after trading just slightly lower earlier. The S&P 500 and Nasdaq erased gains to trade at session lows. State Street Global Advisors Senior Economist Simona Mocuta and Global Market Strategist at J.P. Morgan Asset Management, Gabriela Santos, joined Yahoo Finance Live to discuss.

Video transcript

ADAM SHAPIRO: Just a little over two minutes to the closing bell, and helping us get there are Simona Mocuta, State Street Global Advisors Senior Economist, and Gabriela Santos, Global Market Strategist JP Morgan Asset Management. Good to have both of you with us. But right now let's check in with Jared Blikre, because we've been watching a lot of acceleration to the downside. Has it slowed up?

JARED BLIKRE: Well, we're at session lows in some of the majors here. Let's take a look at the charts and just go through them. Got about two minutes or a little bit less until the close. Dow is off not quite 1%, but you can see there is that low we had around 2:00 PM and still at the bottom end of the range. Don't need to go over the details, but this is Joe Biden's tax proposal increase on capital gains.

NASDAQ, similar story, right down close to session lows right here. And then we have the Russell 2000, which has been green most of the day, but you can see just kind of consolidating around the Unchanged, or UNCH as they call it. Well, I do want to look inside at some of our tickers here.

And we can see the majors-- excuse me-- the mega caps under some pressure. Apple is now off more than 1%, so is Microsoft, Amazon, Facebook, and Alphabet. And then Tesla, Tesla's down 3%, having a rough go of it as we get some new proposals for autonomous driving regulation, interestingly in both directions.

Got to chip out-- got to check out the chip space, because in semiconductors we have a few underperformers. Lam Research reported earnings within the last 24 hours, that's down 4%. Micron down 5%, AMD 3%, Nvidia 3%. And guess what? We're going to get Intel right after the bell, and we're going to be jumping on that when it comes and bringing it right to you.

And it's worth taking a look at the airlines again because after announcing earnings this morning, we got American down 4%. Southwest Airlines down 1%-- almost 1 and 1/2%. And Alaska Airlines down 2 and 1/2%. Some of these airlines at session lows as we speak.

Rounding out with the sector action today, everything in the red, all 11 S&P 500 sectors in the red. At the top, though, the least bad off are real estate and health care, so kind of a defensive setup. To the downside, we got materials, energy, and tech. Those are the biggest laggards, all up 1%. So is financial-- so are financials, by the way. Five seconds to the bell. Here we are closing out another day on Wall Street.

SEANA SMITH: And that wraps up another day here on Wall Street, all three of the major averages closing in the red. We saw reports of President Biden planning to nearly double the capital gains tax. That put pressure on the markets, the Dow closing off 322, S&P off nearly 1%, as well as the NASDAQ. Jared was just mention-- mentioning the sector action that we are looking at today, all 11 of the S&P sectors in the red. Materials, energy, technology, and financials are leading the decline.

Let's bring in Simona Mocuta and Gabriela Santos to talk a little bit more about today's action. And Gabriela, when we took a look at what was the big driver, at least here this afternoon, that report on President Biden raising the capital gains tax. How big of a worry do you think that this could potentially be for the market?

GABRIELA SANTOS: So I think we've spent the entire month of April struggling for direction in the markets. We've had 13 out of the 14 slowest days of the year in April. We're just looking for new catalysts. I think the market has already priced in a lot of the surge in economic growth and earnings growth. And it just feels like we should consolidate, maybe even have a pullback before we continue that trend higher over six months and 12 months.

So I think this is just part of the market struggling to find some direction in the short term. Specifically related to capital gains, this should not be a surprise. It was a part of President Biden's agenda during the election. And it was anticipated as part of the American Families Plan, which should be presented next week, and will be a discussion for the rest of the year. So just struggling to find direction in what otherwise we consider to still be a favorable backdrop for equities.

ADAM SHAPIRO: Simona, some of us refer to these kinds of headlines as distraction of the week. But once we get past this week and this distraction, the realities of a red-hot housing market and red-hot manufacturing, I mean, how much longer can this economy churn at those levels? Are we looking at a slowdown in the near future or, you know, distant future?

SIMONA MOCUTA: I think at some point there's no question we are going to be at peak momentum, peak growth, right. And the question is only how soon do we get there? I would say in both housing and manufacturing, I think there is still quite a bit left in the pipeline simply because demand appears to be quite so strong and inventory so low that even when demand no longer increases just to catch up with the inventory build with construction and with production will keep you going for a bit longer. But I think today is a reminder to all of us that it's-- you know, at some point we are going to be looking at we are behind the peak of this recovery and still strong, but no longer accelerating.

SEANA SMITH: Gabriela, you mentioned the fact that the market has been searching for direction here for most of April. You also noted in your notes that the global recovery trade has stalled recently. What do you think is going to be the catalyst that's going to turn some things around?

GABRIELA SANTOS: So I think it's not so much a concern about the actual recovery itself. It's just more that in the US, specifically, we've already priced a lot of that in. I think the catalyst actually for-- for higher moves in markets is going to come from overseas, and we're really looking specifically at Europe and Japan. We're starting to see some green shoots emerging in those markets, a pickup in vaccinations in Europe, especially, and green shoots in the data.

Consumer confidence in Europe today surged higher to the highest level since before the pandemic. Tomorrow, we'll get the flash PMIs for April, should continue to show an improvement. So I think that's the next leg higher, and specifically these cyclical regions overseas that also have less crowded positioning and more favorable valuations, regions we would be overweight in this global recovery.

ADAM SHAPIRO: We're going to go on pause right now. Simona and Gabriela hold on, because Intel earnings are out. What's inside Intel, Jared?

JARED BLIKRE: I'll tell you, what-- mostly good numbers here, but we did have a miss on the Data Center revenue. And that's probably what investors are focusing on right now as the stock is off about 1% to 2%, as you can see on your screen there. Let me give you all the numbers.

So first quarter adjusted EPS came in at $1.39, pretty well beating the estimates of $1.14. We have first quarter revenue, that was $19.67 billion, and that is a beat as well. Their adjusted revenue now, $18.6 billion, is greater than the Street estimate of $17.7 billion.

And then they upped their guidance, and this is pretty important here. Intel sees full-year adjusted revenue of $72 and 1/2 billion, so that's half a billion greater than they saw before. Some incrementally good news there for Pat Gelsinger as they try to revamp things.

And here's a note from the CEO in the earnings release, "Intel delivered strong first quarter results driven by exceptional demand for our leadership products and outstanding expect-- excuse me-- execution by our team. The response to our IDM 2.0 strategy has been extraordinary. Our product roadmap is gaining momentum, and we're rapidly progressing our plans with reinvigorated focus on innovation and execution. This is a pivotal year for Intel."

It goes on, but I think investors are saying, yes, it is a pivotal year for Intel as they're doubling down on some of their strategies. We know that they're expanding their fabrication operations and just all in all, Pat Gelsinger, they got their work cut out for them over at Intel.

So it was a miss on that Data Center Group revenue, I'll give you that number, $5.56 billion. The Street was expecting $5.89 billion. But overall, not a bad report. They've managed to beat on both their top and bottom lines. Guys.

ADAM SHAPIRO: Jared, thank you very much. Want to go back to Simona and Gabriela. Simona, I want to start with you on this, the pressures that we were talking about on this economy and the president now transitioning, or at least making pledges about shifting to more green, is that going to be a drain or a boost, because it's going to take capital outlay before we start getting the benefits of it?

SIMONA MOCUTA: Well, it's-- one thing is for sure, it's not going to be a uniform impact across all companies, right. There's going to be losers and winners from this transition, as there always has been in any sort of big spike in economic history. I think near term, probably it does intensify certain supply pressures, because the timeline 2030 may seem like a long time away, but it's actually eight years out, you know, nine years out. That time frame is not that long in the big scheme of an economic transition of this scale.

SEANA SMITH: Gabriela, how are you looking at the reopening plays? We heard from a number of airlines over the last several days. We've got some of the cruise lines up on deck. Are you finding any opportunity there or still just a bit too early on those names?

GABRIELA SANTOS: We still see opportunities in what we would call the more cyclical areas of the market much more geared towards the surge and economic growth. That's really the sectors that we should see a surge in earnings growth as well. So we still think we will continue to see that outperformance of your more cyclical sectors, whether they're travel and leisure names or financials or industrials and materials. And we think it's still really important to rebalance portfolios from what was a really strong growth rally for three years and make sure that we trim some of that and we have a better balance with more cyclical sectors.

I think the green story, though, that we were discussing fits in that second bucket of growth structural opportunities that we want to have now for the recovery, but more so for the next decade. And those are areas we're also finding opportunities related to the shift in national regulations, corporate behavior, consumer preferences. And that's really a theme that we very much see opportunities here in the US, but also in Europe as well as China.